Commenting on Facebook recently, The Guardian’s technology writer Victor Keegan noted that the social network is “Well on the way to becoming what economists call a ‘natural monopoly.’ . . . Users have invested so much social capital in putting up data about themselves it is not worth their changing sites . . . Its massive user base will help maintain its dominance.”
Actually, Keegan’s comment isn’t very recent. It was back in 2007 that he put pen to paper about dominance in social networking. He was writing about MySpace. Anyone heard of it lately?
Believe it or not, some have. Hard as it may be for readers to imagine, there’s still traffic on MySpace. It’s just not what it once was. While it surpassed Google in 2006 as the most visited website in the United States, it’s not even among the 1,000 most visited sites today. MySpace exists, but this former “monopoly” is no longer a player. Such is life in economic sectors largely untouched by the grasping hands of politicians. The team picture of top players is ever-changing.
Apparently Michael Anton didn’t get the memo about Silicon Valley’s dynamism. Having perhaps spent too much of his Liberty Forum essay coming up with “fun facts” about how Silicon Valley is “not a valley,” he spent too little time understanding the feverish competition that almost certainly ensures an eventual toppling of today’s giants. The latter proves his undoing.
Tech: An Endless Fight Against Failure
Smug is Anton’s disdain for the technological minds who’ve apparently spoiled a place he’s never lived in or worked in. As he sees it, the present predicts the future such that “our tech overlords” represent a “baleful influence” that can’t be undone. After critiquing the overlords who are presiding over a “looming tech-ification of the United States,” he pivots to deciding how to “mitigate” this supposedly horrid reality.
Anton would have been wise to actually talk to these so-called overlords, assuming they had the time. The latter is italicized in consideration of what Anton is plainly blind to: “our tech overlords” view themselves as anything but. They wouldn’t necessarily have time for Anton simply because, motivated by their daily fear of obsolescence, they’re feverishly experimenting with new ways of meeting the needs of customers.
Contrary to the musings of a writer who, again, has not “worked in the Valley or in tech,” the on-the-ground reality of Silicon Valley is that long-term success there amounts to an endless fight against failure. Netflix may be worth over $150 billion today, but it’s only a thriving corporation insofar as it long ago recognized how tenuous its hold on the marketplace was. Having beaten Blockbuster with DVDs in the mail, its executives understood that consumers are a fickle lot. So Netflix innovated. It enabled streaming so that customers could watch movies right away (as opposed to two days later). Then, having witnessed up close the viewing habits of its customers, Netflix did the previously unheard of: It produced and released whole seasons of original shows all at once.
To put it plainly, Netflix can claim a nosebleed market capitalization today simply because it never viewed itself as an overlord.
Neither has Amazon. Though the Seattle Internet retail giant isn’t part of Silicon Valley geographically, it’s most certainly Silicon Valley in spirit. We shouldn’t ignore how very uncertain its long-term survival has been (long-term shareholders have suffered too many 20 percent corrections in its share price to count). Amazon prospers precisely because it doesn’t take its present status at all for granted. Even with a market cap that exceeds $800 billion, Amazon runs scared. Its every action is an indication of its internal knowledge that the commercial landscape is ever-changing. That’s why founder Jeff Bezos has spent billions on projects that never panned out. Along those lines, how many readers are reading this bit of commentary on an Amazon Fire smartphone? Probably not too many. Bezos succeeds precisely because he’s willing to experiment in myriad ways to meet the needs of his customer base.
Notable about Bezos’s customer base is that it isn’t large. While Amazon is surely the biggest kid on the block in the Internet retail space, seemingly lost on Anton is how small the Internet retailer’s actual market share is. In fact it’s 4 percent—which explains why Amazon has begun expanding into bricks-and-mortar. Bezos gets what’s lost on the Antons of the world who seem convinced (as John Kenneth Galbraith once was about General Motors) that Amazon has wiped out the competition on the way to selling the whole market. Back to reality, Bezos currently competes for a dominant percentage of what’s less than 5 percent, and is in the process of dipping Amazon’s proverbial toe into what is a much bigger market. And if his self-acknowledged track record is at all predictive, Bezos’s foray into traditional retail will be littered with mistakes.
An Unwitting Mercantilist
None of this seems to matter to Anton. An economic nostalgist much like the current White House occupant (much as he would likely resist the comparison), Anton yearns for the Silicon Valley of the past. You know, the one that made things as opposed to “Designed by Apple in California,” but “Assembled in China.” This is how Trump thinks. And in an effort to really put the modern wealth-creators of Silicon Valley down, Anton adds that the “robber baron” fortunes were at least “inherently tied to the land, the physical country.” Anton doesn’t know it, but this is how mercantilists talk, and it’s specifically how they talk at 1600 Pennsylvania right now.
Worse is that Anton’s stance is confused. It’s much better that the tech companies’ wealth isn’t tied to the land, simply because when wealth is immobile, this empowers the men and women who don’t have to feverishly search to meet our needs. That would be politicians. Anton poses as anti-power, and anti-concentrations of power, but he’s not as opaque as he wants us to believe. He’s not against monopoly power as much he would oddly prefer it go to those who didn’t earn it over those who plainly did, do, and will continue to, so long as they want to remain on top.
Although he acknowledges that rumors of fortunes being made proved quite the lure for migrants out to California from 1848 to 1855 (the Gold Rush), he makes the laughable claim that what really spurred the westward rush of humanity was World War II. As he sees it, the exposure of so many Americans stationed there during the war opened their eyes to California’s beauty and low cost. Except that communications were advanced enough, nearly 100 years before, that hundreds of thousands made their way to the Golden State from around the world. Anton seemingly wants readers to believe that communications actually atrophied over the ensuing century such that it took maiming, killing, and horrid wealth-destruction in England, France, Germany, Japan, and so many other places to repopulate the state.
Even more ridiculously, he goes on to tie California’s innovative qualities to the rather obtuse belief that war “spurs innovation.” Actually Mr. Anton, no. Humans spur innovation, and wars lead to the extermination of humans. How interesting it would be for Anton to offer up his closed-eye theories to families in Asia, Europe, and the Middle East about how a silver lining to the torture, crippling, and murder of people is innovation that enables even more effective killing. Apparently some of the latter fosters more commercial advances. Okay, but just think how much more advanced Asia, Europe, and the Middle East would be had so many of their inhabitants not died. And how much agony the people would have been spared. It’s not just that Anton is smug. He’s careless, too.
After that, Anton’s desire to discredit what he’s never been a part of is just plain wrong. He mocks the Valley idealists who said workers at the same company “could live and work thousands of miles apart” and alleges that “Obviously, things haven’t worked out that way.” Except that they have. Upwork Global, Inc. is but one of many Valley companies that ties the proverbial San Jose coder to his coworker in Shanghai. They can quite literally watch one another work. Considered through a wider lens, it’s not just Amazon shipment centers that are everywhere.
Anton writes that Valley companies no longer seek “to meet real needs, but to create and satisfy new wants.” And that’s a bad thing? Is he too young to remember when Americans decidedly were not demanding laptops, smartphones, Internet, WiFi, books/CDs/DVDs online, or rides on demand? Thank goodness Valley visionaries are anticipating our needs! Who among us could live without the products previously mentioned for even a day in modern times?
Valley Start-Ups’ Failure Rate: Over 90 Percent
And then we come upon the rather juvenile assertion that the new business model for the Valley’s celebrated “entrepreneurs” (the quotes are Anton’s, one guesses to reveal his scorn for people who’ve actually produced things) is to “found a company not with a groundbreaking new product or vision, but instead one just close enough to something that’s already out there (but not so close that you bump up against patents and copyrights) that a bigger company feels forced to buy to fend off potential competition.” Oh dear. To read such words is to almost feel guilty critiquing their author. If he had a clue—if he knew how exceedingly rare it is for a start-up to actually be purchased—he would never associate his name with an assertion so divorced from reality.
Back to reality, the failure rate among Valley start-ups is over 90 percent. So for Anton to presume a business model on the part of technology companies is the height of folly. They’re just trying to survive. Those who sell out for $1 billion with a “b,” or even $10 million with an “m,” are the major exceptions to the failure rule. Anton should be ashamed, but readers should also be sympathetic. He once again just doesn’t know.
In closing, it’s worth pointing out that when the 21st century began, Apple was just emerging from near-bankruptcy; Google was a mostly unknown private company reliant on word of mouth about its search engine; Amazon sold books, DVDs, and CDs (its stock was about to fall into the single digits), and Facebook didn’t even exist. Mark Zuckerberg was still in high school. Microsoft was entering a 15-year period of a flat stock price after having been needlessly harassed by a U.S. Department of Justice eager to stamp out “monopoly power.” Gratuitous, since Microsoft was already late on the Internet, on search, on social networking, and surely other things.
All of the above deserves mention in light of the cheap use of “monopolies” to describe the Valley’s biggest and best. How little Anton understands the past. Indeed, the companies listed in the previous paragraph, while the opposite of hot in 2000 (or even in existence), are the five most valuable companies in the world in 2018. It’s all a reminder that only in the minds of self-serious essayists is the notion of “tech overlord” a serious one. In the real world of technology, tomorrow is always terrifying for it signals the end of what’s ephemeral.
Though Michael Anton’s ability to write for a living is an effect of the capitalistic wealth that he so belittles, he’s too wrapped up in himself to understand the obvious irony.